Australia, Coal and Climate Change

For some years, Australia has been the bad boy of climate change, with a recent assessment by Germanwatch and Climate Action Network Europe – released to coincide with the Paris Climate Change Summit at the start of the month – ranking Australia third from the bottom of the 58 countries ranked, ahead of only Saudi Arabia and Kazakhstan.

For one thing, Australia has the worst per capita emissions among the major Western countries. It also lags its peers in investing in renewable energy. It’s modest target of a 5 percent reduction in emissions by 2020 over 2000 levels – dismissed by the government’s own Climate Change Authority as inadequate – is unlikely to be met by its current policies, short of some serious fudging of the numbers.

The Paris deal, for its shortcomings, is a turning point in the climate change saga – for the first time virtually every country in the world has committed to action on containing emissions. That leaves Australia very much in need of a new policy.

Precisely what that policy is going to be remains unclear, Prime Minister Malcolm Turnbull has remained coy, wary of the climate change-skeptic right wing of his own Liberal Party. This is likely to be the case until the next federal election, likely in the second half of 2016, where Turnbull hopes to win a mandate and gain the ascendency over that segment of his party that hasn't forgiven him for ousting Tony Abbott several months ago.

Whatever policy Turnbull (or a Labor government, should it win) does adopt will have to address the issue of coal.

Coal is a huge industry in Australia. For one thing, it provides around three quarters of the nation’s own electricity, and more than that in the two largest states. According to the Minerals Council Australia the industry employs 150,000 Australians, directly or indirectly. It also generates about $40 billion in export revenue. This scale gives the industry very considerable political clout.

Yet coal is the major contributor to climate change. It is the dirtiest of all energy sources. Coal-fired power plants produce the most greenhouse gas emissions per kilowatt of energy out of all the fossil fuels, and as such are responsible for a large chunk of total carbon dioxide emitted each year. This simply cannot be ignored in any serious climate change policy.

In fact, the problem for Australia is two-fold. In the shorter term, the government needs to fit the coal industry into its climate change action plans. In the longer term, it must deal with the fact that one of its biggest industries faces terminal decline.

The shorter term issue is likely to be largely dealt with using “clean coal” technology. This includes carbon capture storage and other approaches that the industry argues can reduce emissions about 40 percent from current levels. It would not be surprising to see the government encouraging investment in these technologies, while at the same time finally getting serious about renewable energy.

But that latter policy would only accelerate the decline of the industry. The long-term future of the coal industry is grim, as China and other major customers shift to renewable energy, the cost of which is falling fast. Australia has coal deposits sufficient for hundreds of years, but the future of coal as an economically viable energy source is likely measured in decades.

It is not difficult to see what will happen. Coal prices will drop, as the industry tries to stay competitive with other energy sources and sell its coal while it still can. This dumping of coal on world markets, mostly in emerging economies, will ironically increase carbon emissions, but it will also hasten the demise of the industry.

Exacerbating these woes is the overinvestment in production that copied the boom in other commodities segments Australia enjoyed over the past two decades. As demand slows in China, the industry (and some analysts) are hopeful that other emerging economies in Asia can take up the slack, but already some industry projects have become unviable. In particular, the industry is hopeful that Indian demand will step in to replace Chinese coal consumption. However, coal imports in India recently fell, and like China the country is increasingly concerned about pollution in its cities.

In the wake of Paris, governments around the world are recognizing the need to phase out coal in favor of environmentally friendly alternatives. For Australia, as the years go by, both the environmental and economic case for coal will become harder and harder to make. Ultimately, that will leave the government looking at a gaping hole in its economy. Perhaps it is one that can be filled with a robust renewables policy.